Unfair Trade Advantage: Anti-Trust Exemption (Part 4 of 4)

by Robert Whiting (April 2008)

Continuing our
discussion of unfair trade advantages, begun in a previous column,
the basis thesis, restated, is: MLB enjoys certain benefits under US
law and custom that give it a decided advantage over the NPB in
competition for the international market for players and for fans.
NPB teams may be poor at making money through baseball, but the gap
between them and MLB teams would not be so great if the MLB did not
have what could reasonably be called "unfair trade advantages."

One of these unfair
trade advantages is MLB's exemption from U.S. antitrust laws
and interstate commerce laws which prohibit actions that unreasonably
restrain competition. U.S. antitrust laws were put into place in the
early part of the 20th century, to stop monopolistic
practices of powerful big oil and steel corporations. In 1922, the
Supreme Court ruled that the anti-trust law did not apply to
baseball. The rationale was that baseball games were local affairs,
not interstate commerce, which was more or less true at the time.
Thus, baseball is the only major sport that has an exemption from
anti-trust law.

Of course, the
situation has changed in the past 86 years. MLB baseball has become a
huge business and MLB owners indeed act like a monopoly at times,
controlling when franchises can move and where they can move to.
Greater New York, for example, is big enough to support three MLB
teams, possibly even four, but the owners of the Mets and the Yankees
have a veto power, under MLB rules, and can prohibit any other MLB
team from moving there.

MLB's
anti-trust exemption has been challenged more than once in the
courts, but each time the Supreme Court has upheld the anti-trust
exemption, ruling that since Congress granted the original exemption,
Congress should therefore be the one to decide whether or not it
should be continued. This means baseball owners cannot be sued for
anti-trust violations.

If the antitrust
exemption disappeared, one could conceivably see small-market
franchises attempting to move to big market cities like New York,
Chicago, and Los Angeles. The powers-that-be in the MLB would
probably retaliate by contracting, forcing those franchises to leave
the league, which, would then raise the possibility of the contracted
franchises forming a new professional major league of their own. In
either event, the more profitable, established franchises would find
themselves faced with stiffer competition. A natural result would be
a reduction in their revenue streams, meaning less money to spend on
acquiring players – including players from Japan.

Another result of
removing the antitrust exemption would be the teams' loss of
control of minor-league contracts. MLB teams now have deep minor
league systems, four to five times as deep as NPB teams. Eliminating
the contractual rights to the several hundred minor league players
each MLB team controls would mean that the owners would lose power in
negotiating with the players. This would increase competition, player
salaries and player movement from one organization to another,
causing MLB operating costs to rise.

So, to review, the
unfair advantages we have listed include stadium subsidies,
depreciation of salary costs and exemption from antitrust and
interstate commerce laws that are applicable to other businesses.

This does not mean
that the NPB could not do a better job of selling itself to the
public. Promotions, along with integrated media, merchandise and
concession rights, as well as revenue-sharing, are all worthwhile
things that the NPB should be doing.

However, the idea
that the MLB is a perfect example for Japanese baseball to emulate is
ridiculous.

The truth is that
Japanese baseball talent is being siphoned off with the partial
assistance of U.S. tax subsidies. There is no way that the Japanese
government could -- or would -- dispense largesse to Japanese
baseball on such a lavish scale.